Luxoft Holding Keeps Diversifying in a Volatile Market

By Steve Symington Markets Fool.com

Luxoft Holding(NYSE: LXFT)announced mixed fiscal third-quarter earnings on Wednesday, after the market closed. Shares fell modestly as investors weighed the contrast between today's challenging business environment andthe software development specialist's reasonably solid performance.

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Let's dig deeper, then, to see what drove Luxoft's results as it kicked off the second half of its fiscal year.

Image source: Luxoft Holding.

Luxoft Holding results: The raw numbers

Metric

Fiscal Q3 2016*

Fiscal Q3 2015

Year-Over-Year Growth

GAAP revenue

$206.9 million

$171.9 million

20.3%

GAAP net income

$18.5 million

$18.0 million

2.8%

GAAP earnings per diluted share

$0.55

$0.52

5.8%

*For the quarter ended Dec. 31, 2016. Data source: Luxoft Holding.

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What happened with Luxoft Holding this quarter?

  • On a constant-currency basis, GAAP revenue climbed 21.9% year over year.
  • Adjusted (non-GAAP) net income increased 12.5% year over year, to $27.9 million, or $0.82 per diluted share.
  • Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) was $37.5 million, or 18.1% of total revenue, up from $32.8 million, or 19.1% of revenue, in the same year-ago period.
  • For perspective, Luxoft doesn't provide specific quarterly financial guidance. But Wall Street was modeling higher quarterly revenue of $209.1 million, and lower adjusted earnings of $0.81 per share.
  • Revenue by industry vertical included:
    • 6.8% year-over-year growth from financial services, to $122.3 million.
    • 37% growth in automotive and transport revenue, to $32.7 million.
    • 91% growth in telecom revenue, to $17.8 million.
    • 16.1% growth in technology revenue, to $13.2 million.
    • A 16% decline in travel and aviation, to $6.5 million.
    • 2.5% growth in energy revenue, to $3.3 million.
    • $10.1 million from the newly broken-out healthcare vertical.
    • $926 million from all other industry verticals.
  • Revenue by client location included:
    • 36.2% growth in the U.S., to $71.2 million.
    • A 16.4% decline in revenue from the U.K., to $50.2 million.
    • 36.9% growth in Germany, to $32.5 million.
    • 34.2% growth in Switzerland, $8.2 million.
    • 24% growth in Russia, to $12.6 million.
    • A 76.5% decline in Singapore, to $488,000.
    • 98.6% growth from all other European countries, to $23.7 million.
    • 42.8% growth from the rest of the world, to $7.9 million.
  • Top-client concentration declined 6.5 points year over year through the first nine months of the fiscal year.
  • GAAP revenue outside the top three legacy clients climbed 53% year over year.
  • Productivity (annualized revenue) per engineer increased 2% year over year, to $78,761.
  • The quarter ended with cash and equivalents of $98.1 million.
  • Cash flow from operations was $74.5 million through the first nine months of the fiscal year.
  • On Feb. 1, the company acquired IntroPro, an engineering consulting company specializing in enterprise and embedded software architecture, development, testing, maintenance, and managed services for content delivery for the TV, media, and entertainment industry.

What management had to say

CEO Dmitry Loschinin stated:

We are happy to deliver good quarterly results to our shareholders, reflecting healthy growth and margins in line with our guidance. It has been a volatile time for businesses worldwide; however, we welcome challenges as they provide opportunities to transform the company and make it even stronger.We are happy to see solid growth across our core verticals, mostly driven by high potential accounts across automotive, financial services, and telecom sectors. [...]We believe we are successfully rotating the source of growth for the company to a new client base outside of our legacy clients. Current pace of our account development and pipeline dynamic, combined with prevailing trends around autonomous driving, robo-advisory, cloud enablement, and other disruptive digital technologies that support IT spending momentum, we stand optimistic on our ability to capture the incoming demand.

Looking forward

Finally, Luxoft once again reiterated its previous guidance for full fiscal-year revenue of at least $781 million, which would represent year-over-year growth of at least 20%. Luxoft also continues to expect adjusted EBITDA margin for the year in the range of 17% to 19%, and adjusted diluted earnings per share of at least $2.85. Finally, Luxoft confirmed its prior guidance for full-year GAAP earnings per share of at least $1.65.

All things considered, this was a strong report from Luxoft with no big surprises -- though it's worth noting that shares were already up more than 25% since early November on the heels of Luxoft's better-than-expected fiscal second-quarter report. So while the market's initial negative reaction to this performance might not indicate as much, Luxoft is rightly pleasedwith where it stands today.

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Steve Symington has no position in any stocks mentioned. The Motley Fool recommends Luxoft Holding. The Motley Fool has a disclosure policy.